Correlation Between China Conch and Seadrill

Can any of the company-specific risk be diversified away by investing in both China Conch and Seadrill at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining China Conch and Seadrill into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Conch Venture and Seadrill Limited, you can compare the effects of market volatilities on China Conch and Seadrill and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in China Conch with a short position of Seadrill. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Conch and Seadrill.

Diversification Opportunities for China Conch and Seadrill

-0.38

Correlation Coefficient

China Conch  Seadrill

Very good diversification

The 3 months correlation between China and Seadrill is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding China Conch Venture and Seadrill Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seadrill Limited and China Conch is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on China Conch Venture are associated (or correlated) with Seadrill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seadrill Limited has no effect on the direction of China Conch i.e., China Conch and Seadrill go up and down completely randomly.

Pair Corralation between China Conch and Seadrill

Assuming the 90 days horizon China Conch Venture is expected to generate 1.89 times more return on investment than Seadrill. However, China Conch is 1.89 times more volatile than Seadrill Limited. It trades about 0.01 of its potential returns per unit of risk. Seadrill Limited is currently generating about 0.0 per unit of risk. If you would invest  144.00  in China Conch Venture on October 21, 2024 and sell it today you would lose (51.00) from holding China Conch Venture or give up 35.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

China Conch Venture  vs.  Seadrill Limited

China Conch Venture

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Conch Venture are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Conch reported solid returns over the last few months and may actually be approaching a breakup point.

Seadrill Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Seadrill Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Seadrill is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with China Conch and Seadrill

The main advantage of trading using opposite China Conch and Seadrill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Conch position performs unexpectedly, Seadrill can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Seadrill will offset losses from the drop in Seadrill's long position.

The idea behind China Conch Venture and Seadrill Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.